Venture Capital Trends In India In 2023 And The Outlook For 2024

India’s economic landscape remains robust, showcasing a GDP growth hovering around 7%. The country’s allure as an investment destination has strengthened, drawing attention from global investors eager to capitalise on the nation’s economic potential.

While 2022 and a significant part of 2023 witnessed a sluggish pace in venture capital activity, recent indicators suggest a positive turn. The robust subscription rates of Initial Public Offerings (IPOs) and the buoyant stock market have injected optimism into the investment ecosystem.

In 2023, Indian venture capital saw a measured deployment of approximately $10 Bn. This slowdown, however, played a pivotal role in instilling discipline within startups, putting an end to the funding bubble that had sustained weak business models. 

The influx of capital in 2020 and 2021 may have exceeded the absorption capacity, leading to a more discerning investment environment.

Capital Crunch For Growth And Late-Stage

The year 2023 experienced a scarcity of capital for growth and late-stage funding, with only 17 rounds exceeding the $100 Mn mark. However, a silver lining emerges in the form of an emerging trend among early-stage founders. 

Those with prior experience in scaling startups are entering the arena with a focus on judicious capital utilization, setting a positive tone for the coming years.

As crossover venture capitalists retreated, domestic VCs and family offices stepped up their involvement. The most promising companies are still receiving competitive bids for their equity, signalling a shift in the dynamics of venture capital funding.

India’s Digital March

The digital transformation in India continues unabated, characterised by a widening internet user base and the rapid scaling of digital transactions. The lingering question of monetization is finding robust answers, especially in the realm of content apps. The burgeoning consuming class in India is enthusiastically embracing new-age brands, resulting in accelerated growth for many startups.

The tipping point has been reached, with well over 50% internet penetration. This milestone paves the way for indigenous models to take centre stage, led by founders seasoned in the crucible of scaled startups.

Diversification In VC Funding

In contrast to the United States, where venture capital funding in 2023 leaned heavily towards sectors like Gen AI, India’s funding landscape has been more evenly distributed across a wide set of sectors. This diversification points towards a balanced and adaptable approach to investment, fostering a more resilient ecosystem.

The Road To 2024

The lead-up to 2024 appears promising. The recent resurgence of the IPO market and the anticipation of global interest rates decreasing set the stage for a favourable investment climate. 

The retrospective view of 2023 suggests a strong vintage has been birthed, with a pragmatic take on building with capital efficiency to eventually list in India.  

The opportunity set in India whether to enable business efficiency or to cater to consumer aspirations continues to grow. 

We expect to see more and more startups building for India from India and also find footing in global markets.  To the venture capitalists, I would only say “Feel the fear and do it anyway.”